Core GDP: a medium- to long-run measure of Brazilian economic activity

Abstract

The economic activity of a country can be affected by shocks due to short-duration events that do not represent change in the business cycle. Knowledge about the current state of the economy is useful in decision making and it is helpful to generate investment, for example. We apply the methodology developed by Altissimo et al. (2010) to the Brazilian scenario, aiming to construct an indicator of the state of the economy, the Core GDP, that is less affected by short-run fluctuations and is capable of predicting turning points in domestic economic growth. The article contributes to the literature since our indicator has all the desired properties of a core: low volatility, and the ability to capture and predict a trend in economic activity. The Core GDP proved to be effective in detecting signs of relevant changes in the Brazilian economic activity tendency, such as the pick-up in growth after the 2008 crisis, the economic retraction that started in 2014 and the beginning of a recovery in 2016.